Pros and Cons of Buying an Existing Business for Sale

Cherishing an entrepreneurial dream and realising it are two different things. Most people do not take the final plunge because of the financial risk involved. However, many far-sighted and determined individuals go the extra mile to make it happen. While some take the hard way of starting a venture from the ground up, others make their way to the top by acquiring an existing business for sale in New Zealand.

Buying an established business is often considered an excellent platform for inexperienced and budding entrepreneurs who need to crave a mark in the cluttered marketplace. However, it comes with its set of advantages and disadvantages that have been described below.

Pros of Buying an Existing Business for Sale

Buying an existing business has several advantages as it has been set up in advance and does not require additional legwork. Let us look at these in detail.

1. Established Customer Base

Every business depends on sales to generate a return on investment, and sales are guaranteed when you have an existing customer base. A well set-up business will have a growing list of clients that can be leveraged by the entrepreneur to start earning from day one. You will not have to worry about branding and awareness as the target audience recognises the products and is already using them.

Also, it is easier to retain customers than to acquire new ones. Thus, you will earn a reliable income without spending much on building credibility or brand awareness in the market. A new business, on the other hand, will take a long time before it reaches break-even and builds a significant client base.

2. Proven Business Model

Owning an existing business is a risk-free proposition as the business concept has been tried and tested. All the processes and procedures have been established and will continue in the same manner after the takeover. It will have a business plan and financial documents and projections in place for smooth functioning of operations.

The market research and competitor research conducted by the outgoing owner will help you understand everything without breaking a sweat. It is like getting a business in a box without any effort.

3. Start Earning Instantly

The best part about buying a business for sale is that you do not have to wait until the location is identified, the lease is signed, interiors are renovated, furniture and fixtures are placed, and brand awareness takes place. You can simply walk in and start selling the products and services to the existing customers. Thus, you can enjoy the immediate cash flow without worrying about paying through your pocket to run the business.

There is no pressure of finding suppliers, stocking inventory, hiring a talented team, training the staff, creating an operation manual, etc. All the work has been done, and you can make it your own by purchasing it.

4. Easier to get Financing

Many banks and moneylenders are sceptical about offering a loan to start-ups. The reason is that they are pitching an idea with predicted financial projections and there is no concrete evidence of the success of the formula. Thus, it can be challenging to get money from financial institutions and moneylenders.

However, when it comes to an existing business, you can get financing easily because you can provide the lender with past financial reports, turnover, profits, goodwill, and profitability of the business. In some cases, the buyer can also get seller financing where the outgoing owner offers a loan to the buyer.

5. Lower Investment

While start-ups can cost you a lot of money to build the business from scratch, this is not the case with an established business. The operating costs of an existing venture are lower because the buyer does not have to spend on purchasing all the equipment, furniture, fixtures and spend on hiring a team, establishing a supply chain, stationery, fit-out, and marketing strategy to attract customers.

While purchasing a business for sale, all these costs will be added to the price of the business, but after depreciation and not at the market price. Also, you can negotiate with the seller and get a bargain deal if it is an urgent sale.

6. Available Support

A business for sale will have an existing list of suppliers and vendors who sell stock to the business at a discounted rate. The relationships maintained by the previous owner will be automatically transferred to the new buyer who can take advantage of them.

Besides these, the business network will also have a list of like-minded people in the industry, mentors, angel investors and venture capitalists. All of them can prove beneficial for the future development of the business. Thus, the buyer will have a wide range of opportunities to succeed.

Cons of Buying an Existing Business for Sale

Let us look at some of the drawbacks of purchasing an existing business that must be avoided to stay safe.

1. Lack of Expertise

Buying a business does not guarantee success. You need to be sure that it is a fit for your personality and work experience. A business needs an able and competent leader who can take it to the next level. Thus, buying a profitable business is only half the battle won. You need to have the calibre and acumen to steer it in the right direction.

2. High Overhauling Costs

Due diligence of the business must be a vital part of the buying process because there are chances of getting duped by the outgoing owner. You may be handed over equipment that is about to break down or in need of replacement, the staff may be untrained, or the lease of the office may not get renewed.

These problems can incur costs, time, and effort. In addition, it can also cost a lot of hassle and stress. Thus, make sure that you are paying for what you are getting in the deal. Examine every aspect of the business before signing the purchase contract.

3. Conflict of Vision

When you get an established business model, you must work according to the processes and policies laid down by someone else. It can be challenging to understand the vision and mission of the outgoing owner. You may not be able to give it a new direction as it can be hard to change the existing work culture and mindset of the staff members.

Conclusion

If you are planning to purchase a business for sale in New Zealand, you should consider all the pros and cons before jumping the bandwagon. Although it is a secure way of enjoying entrepreneurship, it comes with its challenges. So, prepare in advance for the uphill task and make it work.